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2021 AFPM Annual Meeting Virtual Edition: A unique refinery-chemicals integration tool

ALAN GELDER, VP, Refining, Chemicals and Oil Markets—Wood Mackenzie


To remain competitive, refiners are increasingly expanding their product range by forward integrating their output to include petrochemicals, while petrochemical companies are also backward integrating their new capacity additions.

With so many factors to consider, the need is increasing for a detailed understanding of integrated refinery-petrochemical sites to form a complete view of the industry for benchmarking, as well as to inform diversification strategies and identify investment opportunities.

Integration has become a strategic imperative, but measuring its value is notoriously difficult. To combat this problem, Wood Mackenzie has developed REM-Chemicals, which uses best-in-class data to assess integrated site and value chain competitiveness. REM-Chemicals provides a comprehensive view of global integrated refining-petrochemical assets. The tool can also be used to understand themes and trends impacting integrated refinery-petrochemical site economics by looking at the entire industry.

REM-Chemicals allows users to:

  • Inform valuations of integrated refining-petrochemical assets. Historically, this has only been possible with fuel-based refined products. As refineries have diversified, it has become increasingly important to have insight into the entire product output of individual integrated refinery-petrochemical sites to establish their true valuation.
  • Evaluate and benchmark against competitors. Each integrated refinery-petrochemical site is different, so comparable evaluation and benchmarking are extremely challenging. REM-Chemicals offers an excellent tool to achieve this through individual and multi-site benchmarking.
  • Highlight strategies to mitigate the slowing growth in demand from transport fuels and identify forward integration opportunities. Integrated refinery-petrochemical site margins provide market understanding and support refiners and chemical producers in identifying integration synergies that could have a material impact on site margins, companies’ asset valuations and long-term corporate strategies.
  • Provide analysis to support investment decisions. Investors can assess how individual integrated refinery-petrochemical sites are adapting and show how robust a company’s portfolio is.
  • Facilitate identification of emerging competitors. Non-integrated refiners and standalone petrochemical producers must be aware of market developments and identify emerging competitors that may not have previously been active in their space.

A case study: How much value does refinery-chemicals integration add for Total and Shell? Even before the COVID pandemic took a bite out of oil demand in 2020, integrating refineries with chemical facilities was a growing trend as companies strive to capture growth, diversify earnings and maximize profit. The current crisis will only accelerate that trend as integration becomes a strategic imperative.

Integration has already proven that it can add significant value, but how does the industry benchmark success? Wood Mackenzie’s experts used the company’s new model to “crunch the numbers” for Total’s integrated portfolio and then compared it to Shell’s.

Many first-generation integrated sites have been operating for decades. However, some of the majors, such as Shell and Total, have shifted their focus to integration only more recently.

Both companies have focused on petrochemical’s contribution to their competitive refining portfolios and have begun to close or divest weaker refining assets. Total has a limited number of standalone refineries, with the closure of the Grandpuits refinery in France already announced. Meanwhile, Shell plans to further reduce its refining portfolio from 20 to just six assets.

Shell has a larger refining capacity than Total, but a lower aggregate production of olefins/polyolefins and aromatics (FIG. 1).

FIG. 1. For both majors, integrated sites are responsible for virtually all the value contribution across their downstream asset portfolios.

Adding value through crude-to-chemicals integration. Integration can allow a producer to switch product yields between refining and chemicals—depending on which products are more valuable at any given time—making margins more resilient. Also, sharing processes that overlap in refining and chemical units can generate cost synergies.

However, measuring that value is challenging. Tracking and benchmarking value on an “apples to apples” basis is extraordinarily difficult.

The benefits of integration vary by site, technology choice, scale and a host of other factors. Integration also increases the complexity of an operation. To fully understand the value that is created, a holistic view must be taken.

New benchmarks are needed. The tools the industry uses to benchmark facility competitiveness must change. As integration as a strategy becomes more commonplace, Wood Mackenzie is looking more closely than ever at the full picture of the margin and competitive position of entire petrochemical and refining sites, rather than just one primary chemical product.

That is why the company created a new modelling technique to assess the changing refinery and chemicals market. Building on its refinery evaluation model (REM), REM-Chemicals expands site coverage across the olefins, polyolefins and aromatics chains, providing a broader perspective on integrated assets. This allows companies to more meaningfully benchmark and assess an individual site’s competitiveness against its peers.

How much value has integration added to Total’s refining portfolio? Of Total’s nine integrated sites, Wood Mackenzie has evaluated the impact of integration on the bottom line of its Gonfreville refinery. Extending its facilities to include olefins and aromatics production has materially enhanced the site’s overall competitive position.

The site’s preliminary net cash margin (NCM) increases by almost $6/bbl, with earnings before interest, taxes, depreciation and amortization (EBITDA) increasing $560 MM when petrochemical products are incorporated.


About the author:

ALAN GELDER is VP of Refining, Chemicals and Oil Markets, and is responsible for formulating Wood Mackenzie's research outlook and integrated cross-sector perspectives on the global downstream sector.

Gelder joined the business as part of Wood Mackenzie's Downstream Consulting Team in 2005 and later went on to lead the division. He has managed consulting assignments all over the world, focusing on major transactions (projects and M&A) and their alignment with key success factors for industry players and third parties. He then transitioned into research upon his return to London from Houston in 2011.

Prior to joining Wood Mackenzie, Gelder spent 10 years as an industry consultant after working for ExxonMobil in a variety of project planning and technical process design roles.

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